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Apple and BMW put charge into Chinese cobalt stocks

Dash for supplies has tripled the battery material's price in two years

Much of the world's cobalt comes from mines such as this one in the Democratic Republic of Congo.   © Reuters

HONG KONG -- China's cobalt mining stocks are soaring as companies like Apple, BMW and Volkswagen rush to secure supplies of the metal used in lithium-ion batteries for smartphones and electric cars.

Shares of Chinese cobalt miner Jinchuan Group International Resources have soared over 70% in Hong Kong since the start of this year, while Shanghai-listed Zhejiang Huayou Cobalt climbed nearly 50% and Shenzhen-listed Nanjing Hanrui Cobalt gained over 20%.

China Molybdenum has risen 26%, hitting a roughly 10-year high along the way. The company bought a 56% share of a copper-cobalt mine in the Democratic Republic of Congo from U.S. miner Freeport-McMoRan in November 2016. The purchase made the Hong Kong-listed business one of the world's largest cobalt miners, producing 11,500 tons in the January-September period.

China Molybdenum gained for eight out of nine trading days through Monday. The company tried to rein in its soaring stock price that night by saying it would not change production or sales plans despite rising cobalt prices. The shares sank on Tuesday before rising again on Wednesday.

At the end of January, China Molybdenum estimated that net profit nearly tripled for the year ended in December. In addition to new concessions like the Congolese mine, earnings received a boost from rising prices of mainstay metals like cobalt, copper and molybdenum.

Annual global demand for cobalt currently totals about 100,000 tons, compared with a supply of around 97,000 tons. Inventory stands at roughly 30,000 tons. U.K. research company Darton Commodities says more than half of the world's cobalt supplies go toward lithium-ion and other types of rechargeable batteries. Japanese research company Fuji Keizai estimates that cobalt demand for lithium-ion batteries will soar from 45,900 tons in 2016 to 75,000 tons in 2021.

Cobalt spot prices on the London market have more than tripled in the past two years to around $38 per pound. The market continued its momentum Feb. 21 on reports that Apple was in talks to buy cobalt directly from miners to stabilize procurement. "It will come as no surprise if cobalt prices rise to around $50," said Yuji Tanamachi, president of Japanese metal research firm IR universe. 

BMW and Volkswagen are among the automakers thought to be seeking long-term cobalt suppliers, as more companies anticipate scarcity and higher prices. The decisions by the French and British governments last year to ban sales of fossil-fuel cars by 2040 only poured more gasoline on the already heated market.

Global resource majors such as Glencore and Vale are also large cobalt producers, but their stock prices have not enjoyed the same boost from the metal as their Chinese rivals because cobalt makes up only a small part of their operations.

Cobalt also is recovered as a byproduct in copper and nickel production. Japanese resource company Sumitomo Metal Mining, a large producer of cobalt along with copper and nickel, projected Feb. 8 that net profit for the fiscal year ending in March will increase to 85 billion yen ($794 million), up 25% from the previous forecast, due to higher copper, nickel and cobalt prices. But Sumitomo Metals' diversified production, similar to that of Glencore and Vale, means the Japanese company has also received no cobalt bump to its stock.

Dependence on politically unstable Congo for cobalt also fuels the price speculation. Global cobalt production of 123,000 tons in 2016 included 66,000 tons from Congo, the U.S. Geological Survey estimates. The central African country holds nearly half of the world's roughly 7 million tons of cobalt reserves.

Increasing cobalt output will be difficult, given the metal's limited availability and its recovery as a byproduct. BMO Capital Markets said the price could double again over the next two years, from about $30 per pound at the end of 2017.

Nikkei staff writer Masayuki Yuda in Tokyo contributed to this article.

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